It Is Possible For Gold & The US Dollar To Rally Together

Contrary to popular belief it is possible for gold and the US dollar to rally together. Although gold is usually considered (correctly) to be the anti-dollar, there have been occasions when the two have rallied together.

As the chart below shows, gold and the dollar have risen together on two occasions over the past ten years. The first such occurrence was in 2005 where the uptrend lasted for most of that year, while the second was in 2010.

10 year chart of gold with the dollar index [DXY] overlaid

Chart courtesy of Barchart.com

This is significant because it flies in the face of the conventional wisdom that states that gold will fall or remain flat if the dollar is rising.

The reason this wisdom is faulty is because the dollar, as measured by the US Dollar Index, actually measures the world reserve currency against a basket of foreign currencies which is weighted overwhelmingly in favour of the Euro. And because the Euro makes up more than 58% of the basket, the dollar can appear to be rallying when in reality it’s just that the Euro is being sold off.

This means that it’s possible, and perhaps even likely, that between now and the end of the year the dollar can continue to rise relative to the Euro but gold can still rise relative to the dollar.

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